In business analysis, the production possibility frontier (PPF) is a curve illustrating the varying amounts of two products that can be produced when both depend on the same finite resources. The PPF demonstrates that the production of one commodity may increase only if the production of the other commodity decreases .
What important concept is illustrated with the production possibilities frontier PPF quizlet?
Terms in this set (9) A production possibility frontier is used to illustrate the concepts of opportunity cost, trade-offs and also show the effects of economic growth . A country would require an increase in factor resources, an increase in the productivity or an improvement in technology to reach this combination.
What does a production possibilities frontier show quizlet?
What is the Production Possibilities Frontier (PPF)? a graph that shows the combinations of two goods the economy can possibly produce given the available resources and the available technology.
What purpose does the production possibilities frontier PPF serve?
What purpose does the production possibilities frontier (PPF) serve? It shows the possible combinations of goods that can be produced when available resources are employed fully and efficiently .
What does the production possibility frontier model not show us?
In macroeconomics, the PPF shows the point in which a country's economy is at its most efficient, producing consumer goods and services by optimally allocating resources. ... But if the economy is not producing the amounts indicated by the PPF, it means resources are being mismanaged .
Why is a production possibility frontier curved?
The first is the fact that the budget constraint is a straight line. This is because its slope is given by the relative prices of the two goods. In contrast, the PPF has a curved shape because of the law of the diminishing returns .
How does a production possibilities frontier change if the economy declined?
When the PPF shifts outwards, it implies growth in an economy. When it shifts inwards, it indicates that the economy is shrinking due to a failure in its allocation of resources and optimal production capability . ... That is, if the production of product A increases then the production of product B will have to decrease.
When opportunity costs are constant the PPF will be a straight line?
A straight line PPF: A straight line PPF where the opportunity cost is constant. The slope of the PPF shows the rate at which the production of one good can be transferred to another. The slope is called the marginal rate of transformation (MRT).
How does a PPF show scarcity?
Scarcity is demonstrated by considering the difference between points like C, outside the frontier, and points like A and B, either on the frontier or on its interior. ... The addition of the PPF curve thus illustrates scarcity by dividing production space into attainable and unattainable levels of production.
Why points inside the PPF are inefficient?
Any point inside the PPF, such as point ‘X' is said to be inefficient because output could be greater from the economy's existing resources . ... In other words, Pareto efficiency means an economy is operating at its full potential, and no more output can be produced from its existing resources.
What do points outside the PPF indicate?
Points outside the PPF. They are currently unattainable . The economy does not have the resources to produce them given the current production technology available. Properties of the PPF.
How do you calculate the production possibility frontier?
To calculate the production possibility frontier, choose two variables to compare and create a column within the spreadsheet for each variable . After filling the columns with each variable's values, each row will have values that represent a data set that can be compared to determine production possibility values.
How do you explain the production possibility curve?
A production possibilities curve in economics measures the maximum output of two goods using a fixed amount of input . The input is any combination of the four factors of production: natural resources (including land), labor, capital goods, and entrepreneurship.
What are the four factors of production?
Economists divide the factors of production into four categories: land, labor, capital, and entrepreneurship . The first factor of production is land, but this includes any natural resource used to produce goods and services. This includes not just land, but anything that comes from the land.
When a production possibilities frontier is bowed outward the opportunity cost of one good?
1 Answer. A production possibilities frontier with a bowed outward shape indicates an increase in opportunity costs as more and more of one good is produced .
When opportunity costs are increasing the production possibilities frontier is?
Increasing opportunity cost. When there are increasing opportunity costs, the shape of the production possibilities curve (PPC) is bowed out .
